According to the big thinkers in economics, many of our social and economic problems could be solved with a little tinkering with the price system. Got too much pollution and too many carbon emissions? Raise the costs of pollution and emissions with taxes and higher prices. Traffic congestion can be relieved with the simple addition of road tolls. Too much sugar in our diets can be solved by taxing products with sugar.

The theory is that higher prices will cascade through the economic system. Demand for unwanted products will fall and companies will be forced to close some operations as consumers look for alternatives. The market lets prices do the walking.

Little did Canadians know that the economy is also apparently burdened with too many workers. What else can one conclude in the wake of plans by Ontario, Alberta and B.C. to impose the equivalent of a new minimum $15 road toll on low-wage workers?

In a new report Thursday, the pro-carbon-tax Ecofiscal Commission reasserted its certainty in the philosophy. “A carbon price works by relying on price signals in markets — not governments — to decide where and how GHG mitigation occurs.” If the official effect of a carbon tax is to cut demand for fossil fuels, then it follows that the same will happen with the imposition of a new indirect tax on low-wage workers.

In Ontario, Kathleen Wynne’s Liberal government plans to raise the minimum wage from $11.40 currently to $15 in 2019. The 30-per-cent tax increase is indirect in the sense that the government mandates that it be paid by employers and transferred directly to workers. No money passes through government coffers, but the effect is the same.

Little did we know the economy is burdened with too many workers

Even its proponents concede that the first-line impact of a 30-per-cent increase to $15 will drive some companies out of business. Armine Yalnizyan, an economist long associated with the union-backed Centre for Alternatives to Good Policy, downplayed the prospect of job losses during a recent television discussion. If some companies let go of some workers, “that means they will become more productive. The ones that actually disappear may be so marginal that that’s not a net loss for the economy, if other companies become stronger, create better jobs, with more skills.”

This is standard leftist trickle-up economics in which economic prosperity is driven by monetary demand. “We want more productivity and if raising wages does it, that will actually be good for everybody,” said Yalnizyan.

Sheila Block, a senior economist at the alternative centre, also downplayed the lost jobs. “Absolutely some marginal companies will got out of business and that’s kind of the dynamics of a market economy.”

While we might all welcome the alternative centre’s sudden embrace of the market economy, it’s not a “market economy” if the reason companies will go out of business and jobs will be lost is due to government messing with the market.

Back in 2013, the same organization issued a report provocatively titled “The Young and the Jobless: Youth Unemployment in Ontario.” The report lamented the decline in youth employment in the province. “Five years after the Great Recession, youth remain largely shut out of Ontario’s slow economic recovery. The Help Wanted signs might have re-emerged, but Ontario’s young workers find themselves on the outside looking in — and the province’s current youth employment strategy isn’t fast enough nor robust enough to turn things around.”

The report failed to mention the possible role of the 50-per-cent shock increase in the minimum wage, from $6.85 to $10.25, imposed in Ontario between 2000 and 2014. When the rate hits $15 in 2019, the minimum price of labour in Ontario will have increased by almost 120 per cent.

Every area of economics is a battlefield of contradictory opinions and analyses, but no subject is more war-torn than the study of the impact of minimum wage laws. Most of the battle lines are ideological, with the left claiming that raising the minimum wage generates higher incomes that in turn flow through to benefit the whole economy.

If that’s all it takes to boost growth and productivity, then why not pass a law doubling everybody’s wages? The other trick behind the minimum wage movement is the claim that its negative effects are marginal and manageable. If the wages of low-income workers and youth are raised, then the effects seem relatively trivial and manageable. What’s a few thousand unemployed youth compared with the fat benefits?

Most of the research, however, deals with incremental increases in the minimum price of labour. Big jumps are another matter. In 2014, when U.S. policy-makers were looking at raising the American national minimum wage from US$7.25 to US$10.10, the Congressional Budget Office concluded that 17 million Americans would see wages rise “while 500,000 would end up jobless and therefore with lower earnings.” The job losses could be as high as one million, it said. Young workers looking for first jobs, workers looking for experience and low-skilled marginal workers will be the first to suffer.

As our union leaders know, a rising minimum wage also impacts other wages throughout the economy. Companies and governments alike will face new wage pressures from higher labour costs and richer contract demands. More mechanization and robots will be deployed. Higher wages rates will force higher prices on products and higher taxes to pay for the rising costs of the hundreds of thousands of government employees whose wages are pushed upward by the rising minimum wage.

In cases where the cost of rising wages cannot be passed on, more jobs will be lost. Block implies that the impact of rising wages will be minimal because businesses will simply absorb the costs as part of their “contribution to decreasing income inequality.”

If there are more people without work, as many if not most economic studies suggest, decreasing inequality is an unlikely outcome of a $15 minimum wage.

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